What is a Reverse Mortgage?
Most Reverse Mortgages are formally known as a Home Equity Conversion Mortgages. These mortgages are sponsored and insured by the Federal Housing Authority (FHA) and the Department of Housing and Urban Development (HUD). A Reverse Mortgage or HECM, allows the borrower to access equity into tax free proceeds that do not require a monthly mortgage payment.
How does a Reverse Mortgage work?
With a Reverse Mortgage, there are no monthly payments from you. As one of your most important assets, your home usually holds a certain amount of equity. Because of this equity, when the time comes someday for the loan to be repaid, the value of the home when sold is able to re-pay the loan. Meanwhile, you are able to live in the home for as long as you like without making payments. Here are additional details on how a Reverse Mortgage works.
Will I still own my home with a Reverse Mortgage?
Yes. With Reverse Mortgages, as long as you pay your taxes and insurance and otherwise comply with the loan terms, you will retain ownership of your home. The bank only takes title of your home if you do not meet these obligations. As long as you pay your taxes and insurance and otherwise comply with the loan terms, you remain the owner of the home and may live there for as long as you want.
Is there any risk of losing my home?
No, as long as you fulfill all your obligations of the loan. The obligations for a Reverse Mortgage are that you continue to pay your property taxes, insurance, and keep basic maintenance and repairs. If you do not uphold these responsibilities, the loan becomes due, which may mean the selling of the home to pay the loan. If you uphold these responsibilities and obligations as agreed, you will not lose your home.
How are fee and interest rates calculated?
Many of the fees are the same as with any mortgage. There are some new enhancements to the program that allow for lower fees. Interest rates are flexible, and should be discussed with your our loan specialist to find the right program to fit your financial goals.
How would I receive my Reverse Mortgage funds?
Your Reverse Mortgage funds can be disbursed to you in a few ways. You may receive:
- Full or partial lump sum
- Line of Credit
- Monthly Payments (tenure or modified tenure plan)
- Combination of any of these
The choice is ultimately yours, but our loan specialist at FirstBank are here to help advise you on the disbursement method that is the best option for your unique situation. Remember, you have the option to change your disbursement method at any time.
Is a Reverse Mortgage a last resort option only? Are Reverse Mortgages only for desperate and poor seniors
This is not at all the case. A Reverse Mortgage can be a very powerful and intelligent strategic financial planning tool. There is no better product more readily available to the senior population in terms of supplementing retirement income and managing retirement risks. However, the Reverse Mortgage should be evaluated and customized to your particular need. At FirstBank, we have dedicated professionals that will work with you and any of your financial advisors to obtain a Reverse Mortgage that is tailored to your overall retirement strategy.
How will the Reverse Mortgage loan eventually be repaid?
Your Reverse Mortgage loan is repaid when the last borrower leaves the home or passes away. What typically happens is that the home is sold and the proceeds pay back the Reverse Mortgage loan. Any remaining equity after the loan is repaid goes to you or your heirs. If your heirs choose to keep the home instead, they can pay back the Reverse Mortgage loan in other ways, such as refinancing the Reverse Mortgage to a conventional mortgage loan.
How do I know if I qualify for a Reverse Mortgage and how much money can I receive?
The qualifications to get a Reverse Mortgage are simple:
- Be at least 62 years of age
- Own your home
- Occupy the home as your primary residence
The amount of money you can receive depends on the following:
- Your home’s value (as appraised by an independent appraiser)
- Your age
- The interest rate on the Reverse Mortgage
- Any mortgage balance or liens against the property
Instances when the loan becomes due are called “maturity events.” Maturity events include cases when the last borrower:
- Sells or transfers the home
- Passes away
- Does not pay the home’s taxes and insurance
- Leaves the home permanently or for more than 12 consecutive months
- No longer occupies the home as the primary and principal residence
- Defaults under the terms of the reverse mortgage
Will a Reverse Mortgage affect my Social Security, Medicare, or Pension benefits?
No, these benefits will not be impacted, as a Reverse Mortgage is considered loan proceeds and not income. However, Medicaid and SSI may possibly be affected.
What if the loan amount ends up exceeding the value of my home? Will my heirs be responsible for my debt?
Reverse Mortgages are non-recourse loans. What this means for your heirs is that after the last borrower leaves the home, the proceeds from the sale of the home is the only asset that can be taken to pay the loan’s balance. If somehow the loan’s balance ends up surpassing the value of the home, the difference is covered by the Federal Housing Administration’s (FHA) insurance fund. However, if your heirs wish to keep the home, they may choose to do so by paying off the loan in full.
What happens if I pass away during my Reverse Mortgage loan before I receive the full amount of my loan?
If you pass away during your loan, any part of your loan that hasn’t yet been sent to you remains as equity in the home that becomes part of your estate. What immediately happens to a Reverse Mortgage after death is that it becomes due, and thus the heirs are usually given about 12 months to sell the home. They also have the option to keep the home by paying off the Reverse Mortgage loan. Otherwise, the home is sold and the proceeds first pays off the Reverse Mortgage loan, and the rest goes to the heirs.